The Stock Market Is The Only Thing That Matters Anymore
It's now been well over ten years since the infamous 666 bottom on the S&P 500 on March 6, 2009. Over that time, the Federal Reserve's policies such as low interest rates and quantitative easing have been a match under the stock market, fueling the S&P 500 to its current level just under 3,200. The remarkable run equates to a 10-year annualized return of 17.8%.
As Market Crumbs has often written, the benefits of these policies have not been felt by the majority of the U.S. population. Income inequality in the U.S. is at the highest level since the Census Bureau started tracking it in 1967. The median household income hasn't grown for 20 years. At $63,179 last year, the median household income, when adjusted for inflation, equals the peak reached in 1999.
According to the Federal Reserve, the top 1% now hold nearly as much wealth as the middle- and upper-middle classes combined. The top 1% of households own 50% of total household equities. The wealthiest 10% of Americans now hold more than three-quarters of the wealth, which is more than they did prior to the 2008 global financial crisis.
A few interesting things happened yesterday that would lead a rational person, or as pundits like to label them—conspiracy theorists, to believe that policy makers quite frankly don't give a shit about the effects of their policies anymore and aren't even trying to hide it at this point.
First, U.S. President Donald Trump tweeted "Would be sooo great if the Fed would further lower interest rates and quantitative ease. The Dollar is very strong against other currencies and there is almost no inflation." To believe that the solution to fixing the troubling data cited in the previous two paragraphs is even lower rates and more QE could arguably meet the definition of insanity.
This isn't the first time Trump has pushed for rate cuts and QE. It's worth pointing out how he continues to contradict what he's said in the past. On September 14, 2012, Trump tweeted "QE3 is going to further sink the dollar into oblivion. Creates artificial numbers for short term market gains. There will be a big price to pay in the future." In 2016 before the presidential election, Trump said the Fed has created a "false stock market" by keeping rates low. He added "The ones who did it right — they saved their money [and] they cut down on their mortgages, ... and now they’re practically getting zero interest on the money."
Second, in a sign of either how tone deaf they are or if they just felt like trolling people, the St. Louis Fed tweeted "Are millennials a lost generation financially?" The Fed knows millennials are a lost generation financially and they know the reason they are is because of their policies. The tweet drew harsh criticism with replies such as "Thanks to you sons of bitches." and "There will be riots, i assume. So long security contractors!"
Lastly, Boston Fed president Eric Rosengren said what might possibly be one of the most rational things someone at the Fed has said in a long time. "If you look at the last two recessions, they were not situations where inflation got out of control. They were situations where asset prices went way up and then came way down. So if your goal is to avoid recessions, I think we need to be pretty focused on asset prices not just inflation."
While he is correct and it is commendable he said as much, the issue is his colleagues, while likely seeing the same thing and probably agree, aren't interested in listening to his advice. Rosengren concluded by saying "If what you want to do is avoid recessions in the future, you have to be thinking about what is happening to asset prices as well."
So while the market continues to hit new all-time highs each day as the Fed pumps billions of money into the markets via not-QE, the concentration of wealth will only continue to narrow. Meanwhile, calls for QE and additional rate cuts to keep the bull market going will continue as the stock market is the only thing that appears to matter anymore. For the sake of those who haven't benefitted, hopefully policymakers start thinking like Rosengren. In the likely case they don't and continue the same policies, it will only be a matter of time before people wake up one day and realize they're sick of it and take to the streets as they have all over the world the last few years.
It doesn't even matter at this point. Over the last week, two separate analysts have sounded the alarm on Apple's iPhone sales in China. Last week, Credit Suisse said shipments of iPhones in China dropped 35% as Apple faces competition from Chinese manufacturers who offer phones with 5G capabilities. Yesterday, Rosenblatt Securities said Apple has seen a 30% drop in sales year-over-year. Rosenblatt also cites Chinese competition offering 5G technology as well as the cheaper iPhone 11, which is cannibalizing sales of more expensive models. There was a time when news like this meant something, but thanks to buybacks, shares of Apple once again hit a new all-time high yesterday.
Their houses still burned down. A U.S. bankruptcy judge approved PG&E's $13.5 billion settlement with victims of the wildfires that ravaged California in 2017 and 2018. As part of the settlement, victims will receive cash and PG&E stock. "I don’t think we’ve heard a single person say it’s a bad settlement," U.S. Bankruptcy Judge Dennis Montali said. After rejecting PG&E's reorganization plan last week, California Governor Gavin Newsom said of the settlement "We don’t want to stand in the way of that."
Google continues to do evil. After firing four employees who participated in rallies before Thanksgiving, Google has decided to fire one more. Google fired an employee who created a browser pop-up that read "Googlers have the right to participate in protected concerted activities." Similar to the four previously fired employees, the recently terminated employee has filed charges of anti-union retaliation against Google. This is just the latest in a long list of employee issues facing Silicon Valley companies, as Market Crumbs recently profiled.
It's been a rough two years for HODLers. Yesterday marked exactly two years since bitcoin hit an all-time high of $19,891.00 per bitcoin on the largest bitcoin exchange, Bitfinex. At its high, bitcoin's market capitalization stood at approximately $334 billion. Since then, the price of one bitcoin has fallen by about 66%, meaning a $10,000 purchase on that day is now worth roughly $4,400. In another sign of how things currently stand, LinkedIn recently reported 2018's top "emerging job" in 2018, blockchain developer, has since fallen off the latest list.
Happy holidays, now leave. Bed Bath & Beyond's new CEO Mark Tritton, who joined the company last month from Target, has axed six senior executives as he tries to turn around the company infamous for spamming your mailbox with coupons. "This is the first in a number of important steps we’re taking," Tritton said. "Balancing our existing expertise with fresh perspectives from new, innovative leaders of change, will help us to better anticipate and support our customers in their life journeys and shopping needs."